The Federal Reserve Bank of New York’s New York Innovation Center (NYIC) and the Monetary Authority of Singapore (MAS) have published results from joint research on cross-border payments.
The project, dubbed Cedar Phase II x Ubin+ (Cedar x Ubin+) experiment, evaluated distributed ledger technology (DLT) for cross-border wholesale payments and settlements involving multiple currencies.
It was conducted in a test environment and the hypothetical payments were settled using simulated wholesale central bank digital currencies.
A central bank digital currency (CBDC) can be accessed by the public, while a wholesale CBDC is accessed only by financial institutions to settle wholesale transactions.
The technical research experiment has been conducted based on previous phases of the NYIC’s Project Cedar research and the MAS’ Ubin+ initiative.
Phase I of the Project Cedar found that wholesale payments supported by DLT could improve the speed and safety of cross-border transactions.
Ubin+ is focused on wholesale digital currency to improve the efficiency in cross-border foreign exchange settlement and interlinking with diverse financial networks in the future.
Cedar x Ubin+ evaluated the ability of DLT to establish connectivity across heterogeneous simulated currency ledgers, to reduce settlement risk, and settlement time.
New York Fed Markets Group head Michelle Neal said: “Cross-border payments are a major railway for facilitating the functioning of the global economy.
“Our research collaboration with the MAS reveals key opportunities for central bank innovation to play an important role in easing wholesale payment flows globally and improving settlement outcomes.”
The Cedar x Ubin+ experiment showed that DLT can support enhancements to cross-border multi-currency payments and settlements.
The experiment interlinked the central bank currency ledgers, enabling payments to be safely executed across multiple ledgers without the need for a central clearing authority.
The simulated payments were settled atomically, improving the certainty of settlement, and addressing existing pain points such as counterparty risks.
Each of the simulated payment scenarios achieved end-to-end settlement within an average of thirty seconds, enabling participants to be notified of a payment’s success within seconds.
MAS deputy managing director Leong Sing Chiong said: “The Cedar x Ubin+ experiment envisages a future digital currency landscape where central banks can enable interoperability of wholesale CBDCs to facilitate more efficient cross-border payment flows including for less liquid currencies, without requiring a common infrastructure.”
